08 November 2000

A fair deal for transport and the environment

Chancellor Gordon Brown announced today an affordable and targeted series of measures to help modernise road transport and increase choice for access to cheaper motoring for people who need to use their cars, while continuing to protect the environment.

With the duty freeze, the package for consultation would cut hauliers? costs by the equivalent of 8 pence per litre in the price of diesel and motorists? costs by the equivalent of 4 pence per litre in the price of petrol in Budget 2001.

The Deputy Prime Minister, John Prescott said:

"This is a good deal for everyone. We've had to make some tough choices balancing demands to help the transport industry with a need to protect the environment and to help our towns and cities.

"We were asked to listen and we have done just that. But it's no good governments showing special favours to one side or another. The Government's first priority has been to maintain a stable economy. And we are now seeing the benefit of that for the whole country."

The main measures, to be implemented in Budget 2001 are:

a cash freeze in all road-fuel and other oil duties - a real terms cut in the price of petrol and diesel of 1½ pence per litre, costing £560 million in 2001-02;
conditional on the oil companies guaranteeing nationwide availability, a cut in the duty on Ultra-Low Sulphur Petrol (ULSP) by a further 2 pence widening its differential with standard unleaded petrol to 3 pence per litre. Ultra-Low Sulphur Petrol can be used in all cars which use unleaded petrol;
also conditional on the cut in ULSP, and to maintain the existing balance between the most commonly available diesel and petrol, a 3 pence per litre cut in duty on Ultra-Low Sulphur Diesel (ULSD);
an extension of the 'small? car threshold for vehicle excise duty (VED) from 1200cc to 1500cc, backdated to 1 November 2000 costing £250 million a year, helping an additional 5.4 million car owners;
a 50 per cent cut in, and reform of, VED for lorries, costing £300 million a year - and as a first step in this reform up to £265 million will be available to rebate VED fees for this financial year;
abolishing VED on tractors and other agricultural vehicles;
support for the haulage industry with a new driver training scheme, and a ring-fenced fund worth £100 million to include incentives or allowances to help modernisation of the vehicle fleet, including introduction of cleaner lorries and new technology.

All these measures, except for the road-fuel and oil duty freeze and the rebate of lorry VED this financial year, are subject to consultation.

Road fuel duties

Fuel duties have played an important role in helping the UK meet its Kyoto target for reducing greenhouse gas emissions. However the environmental benefits of higher fuel prices must be balanced with the Government's social and economic objectives. Recognising the continuing high price of oil since the Budget, and the other measures taken by the Government to tackle climate change, duty on all fuels will be frozen in nominal terms in the next Budget. This is expected to cost £560 million in 2001-02.

Poor local air quality is responsible for up to 24,000 premature deaths in the UK each year. ULSP offers real benefits to local air quality and can be used in any car that uses unleaded petrol. In Budget 2000 the duty was cut by 1 pence from 1 October 2000 and ULSP is now coming on to the market. Given the environmental benefits, the Government wants to encourage and speed up the take-up of ULSP.

The Government therefore intends to reduce the duty on ULSP by widening its differential with standard unleaded petrol by a further 2 pence per litre in Budget 2001. This cut would be conditional on the oil companies guaranteeing nationwide access to its environmental benefits. In these circumstances, the duty on ULSP would therefore have been cut by a total of 3 pence per litre since Budget 2000. Reducing the duty on ULSP would cost around £385 million in 2001-02.

Similarly, in these circumstances, the Government believes that it would be appropriate to reconsider the level of duty on the fuel that makes up virtually all diesel sold in the UK, ULSD. Taking account of the role of diesel in determining the transport costs of British business and since ultra low sulphur fuels offer significant benefits over conventional fuels, the Government would bring the duty rate of ULSD down by 3 pence per litre to maintain the existing balance between duty rates on the most commonly available petrol and diesel. This would cost £615 million in 2001-02.

In response to arguments that lead replacement petrol is no worse for the environment than unleaded petrol the Government proposes, subject to a full and proper assessment of the environmental implications, to remove the duty premium on lead replacement petrol, a 2 pence cut in duty.

In the longer term, the challenge will be to ensure that Britain has cleaner, greener road transport. Today the Chancellor invited industry to develop practical proposals for alternative environmentally-friendly fuels, and will announce major reductions in duty rates for the most promising of these fuels in Budget 2001.

Modernising motor taxation

In addition to the changes in fuel duties the Government is proposing, subject to consultation:

extending in Budget 2001 the 'small car? threshold for the reduced rate of VED for cars from 1,200cc to 1,500cc, subject to consulting with the motoring organisations. This will reduce the annual cost of VED by £55 for over 5 million cars, costing around £250 million a year over the next three years, and widening the choice for affordable motoring for people who need a car for their day-to-day life. Furthermore, the Government intends to backdate this arrangement to November 2000 at a further one-off cost of £100 million;
reforming authorised mileage rates from April 2001 to bring benefits to those who use more efficient private cars for business purposes. The Government will be consulting with interested parties on the introduction of a new statutory system from April 2002 which will pay a single mileage rate to all drivers, irrespective of vehicle size. Interim rates from April 2001 will deliver immediate benefits to drivers of smaller cars - while allowing drivers of larger cars time adjust;
introducing a green transport package. A package of measures to encourage green transport will include removing VAT from the purchase of cycle helmets, increasing the mileage rate paid for cycle use for business trips from 12 pence to 20 pence, introducing a new passenger rate of 2 pence per mile and reducing the size of works buses qualifying for tax exemptions from 12 to nine passenger seats. This aims to encourage smaller companies to set up Travel Plans to help their employees to travel to work without using their cars.

If the Government introduces all the measures that it is consulting on, including the freeze and reduction in fuel duties, then the total value of this package to motorists will be about £1½ billion, equivalent to a 4 pence cut in duty in real terms. It will also provide new incentives, offer extra incentives for more environmentally-friendly petrol, and help will be targeted at those who have no alternative to driving.

A modern and competitive haulage industry

An efficient haulage industry is good news for British industry. For the haulage industry the Government unveiled a package of measures aimed at tackling the problems the industry faces:

it intends to reform lorry Vehicle Excise Duty next year by reducing rates and restructuring its system of bands so as to improve its environmental signals and simplify the system. In total, lorry VED will be cut by around £300 million per year - a cut of over 50 per cent. A consultation document on the details of these reforms has been published today and the Chancellor will announce the results of the consultation in Budget 2001;
the Government intends to implement transitional arrangements as a first stage of this reform. Up to £265 million will be available to rebate VED fees for this financial year, in keeping with legal constraints. This will mean cuts of fifty per cent for many of the largest vehicles, worth up to £4,000 each. The Department of the Environment, Transport and the Regions will announce, in the next few days, the detailed arrangements for this scheme. The Government intends that the first payments will be made before the end of the year and all payments before the end of January 2001;
the Government intends to introduce some form of user charging, such as a ?vignette?, intending that no UK hauliers will be adversely affected by this new charge. This will end the unfairness that UK hauliers face road charges when they work in many other EU countries, but foreign hauliers pay nothing for the damage they do to UK roads;
to encourage hauliers to drive newer, cleaner, less-damaging lorries, the Government intends to launch a ring-fenced fund of £100 million to offer further incentives or allowances for scrapping older more polluting lorries or encouraging cleaner lorries and technology. It will consult the haulage industry on detailed arrangements;
the Government will review training in the industry. More efficient routes, more careful driver training and more efficient use of lorries all improve the efficiency of British industry and often have environmental benefits.

Combined with the general duty freeze and proposed cuts in duty on ULSD, the total value of the package that the Government is now consulting on will be worth £750 million to the haulage industry. This is equivalent to a cut of 8 pence per litre off fuel duty for hauliers in real terms, but targeted to improve the competitiveness of the industry while ensuring that hauliers have incentives to protect the environment.

Reducing costs for farmers

Subject to consultation the Government will abolish VED on tractors and other similar agricultural vehicles in Budget 2001. These measures will save the farming industry around £9 million per year, and come on top of other measures that the Government has announced in recent months to support farming.

Notes for editors

Fuel duties and differentials

1. In abolishing the fuel duty escalator in the 1999 PBR and Chancellor said that future changes in fuel duty would be taken in the light of the Government's environmental, economic and social objectives. In Budget 2000, the Chancellor did not increase fuel duties in real terms in light of the increase in oil prices, the lowest increase in fuel duties for eleven years. Today the Chancellor announced that, taking account of the continued high level of oil prices and the Government's other measures to tackle climate change, all fuel duties will be frozen in Budget 2001. This will include non-road fuel duties such as ?red diesel?.

2. Government has successfully used duty differentials to encourage the take up of cleaner fuels to improve local air quality. By widening the differential by 3 pence it ensured that the diesel market converted to Ultra Low Sulphur Diesel. The take up of Ultra-low sulphur diesel is described in the HM Customs and Excise paper ?Using the fuel system to encourage the take up of cleaner fuels: the experience of Ultra-low sulphur diesel?.

3. As announced in the last Budget, the Government introduced a new duty rate on Ultra Low Sulphur Petrol that was 1 pence per litre below the rate on unleaded petrol at the beginning of October. To encourage the faster take up of Ultra-low Sulphur Petrol, the Government will cut the duty on this fuel by a further 2 pence in Budget 2001, if the oil companies guarantee nationwide access to its environmental benefits.

4. Currently Ultra-Low Sulphur Diesel is taxed at the same rate as unleaded petrol. However if ultra low sulphur petrol becomes the most common form of petrol, the Government will cut the duty on Ultra Low Sulphur Diesel to bring it in line with the duty on Ultra Low Sulphur Petrol, which would require a 3 pence cut.

Fuel type	Duty rate at Budget (pence per litre)	Current duty rates (pence per litre)	Possible new duty rates (pence per litre)
Unleaded petrol	48.82	48.82	48.82
Ultra low sulphur petrol	N/a	47.82	45.82
Lead replacement petrol	50.89	50.89	48.82
Ultra-low sulphur diesel	48.82	48.82	45.82

Vehicle excise duty for cars

5. A reduced VED rate for cars was announced in Budget 1999 for all cars with engines below 1,100cc and introduced on 1 June 1999. This gave a £55 VED cut to drivers of 1.8 million cars. Engine size is the best available proxy for measuring the fuel efficiency of existing cars, for which emissions data is unavailable.

6. The Road Haulage Forum brings DETR, Treasury and DTI ministers together with individual haulage operators, the Freight Transport Association, the Road Haulage Association and the Transport and General Workers? Union.

7. In Budget 2000 it was announced that the reduced rate would be extended to apply to all existing cars with engines up to 1,200cc from 1 March 2001, giving a £55 cut to an additional 2.2 million small car owners. In addition there will be a refund of up to £55 for those who owned cars with engine sizes between 1,100cc and 1,200cc in the year before 1 March 2001.

8. The Government intends in Budget 2001 to increase the threshold for the reduced rate further to 1,500cc, subject to discussion with motoring organisations. This increase would be backdated to 1 November 2000. This will increase the number of cars that qualify for the reduce rate by over 5 million, including 670,000 Ford Escorts, 115,000 VW Polos, 75,000 Honda Civics and 46,000 Mazda 323. As a result of this increase over a third of existing cars will qualify for the lower rate.

Package for the haulage industry

9. The Chancellor announced a review of lorry VED in Budget 98. To inform this, the Government commissioned a consortium of experts to produce a report on lorry track and environmental costs (referred to as the NERA report). This report was published in April 2000. The Government has decided to consult on proposals for reform that would reduce lorry VED by £300 million per year at the same time as improving its environmental signals and simplifying the system. Further details can be found in the consultation document published today by HM Treasury, ?Consultation on reform of VED for lorries?. As a transitional first step in this reform, the Government will make available £265 million. The Government intends that the first payments will be made before the end of the year and all payments before the end of January 2001.

10. The Government also intends to introduce some form of lorry road-user charging, such as a ?vignette?, subject to consultation. The main objective of this charge would be to ensure that foreign hauliers contribute towards the road and environmental costs that they impose in the UK. The Government intends that UK hauliers would not pay more as a result of this charge.

11. The creation of a ring-fenced fund of £100 million to support modernisation in the haulage industry and secure environmental objectives of around £100 million and the review of training programmes for haulage are designed to address specific concerns raised by the industry both in the Road Haulage Forum and bilateral meetings.

12. Farmers will benefit from lower transport costs due to the freeze and proposed cut in duty on ULSD. In addition to this, the Government proposes that VED on tractors and other similar agricultural vehicles - which is already at the special concessionary rate of £40 per annum - will be abolished, subject to consultation especially with the National Farmers? Union and the police about ensuring that controls over insurance, maintenance and theft remain. In addition to the benefit farmers will derive from the general measures announced and other measures that have been announced to help farmers, this targeted measure is worth over £9 million to the farming industry.

13. Media enquiries should be directed to either the Treasury Press Office on 020 7270 4420 or the DETR Press Office on 020 7944 3066.

Internal links

Pre Budget 2000 Press Notices index page